If one didn't want to make any calculations or any rebalancing, then here is what I would do:

Pick a Vanguard Target Retirement fund that had the closest allocation to 60:40 that you could find. Look every year and make sure it was still the closest to 60:40 and if not exchange to the one that was closest to 60:40.

The reason to pick the TR fund rather than a mixture of funds is that many folks cannot seem to rebalance at market lows or market highs and this is critical to getting the best returns. TR funds seem to be able to do this with ease.

And I think it is a no brainer to go with the Vanguard fund rather than that mix of funds.

Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index. Your international allocation can be Total International, and your bond allocation Total Bond Market. With institutional shares, you'll have extremely low expenses.

You want a 60/40 portfolio; you didn't specify an international allocation, so I'll assume 30% of the stock. Thus:

grabiner wrote:Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index. Your international allocation can be Total International, and your bond allocation Total Bond Market. With institutional shares, you'll have extremely low expenses.

You want a 60/40 portfolio; you didn't specify an international allocation, so I'll assume 30% of the stock. Thus:

One more question... if the target retirement funds don't offer the 40 / 60 allocation that I am looking for is there anything wrong with a mix of the target funds themselves. For example 60% VTENX and 40% VTINX creates an asset allocation that is very close to 40 / 60 ... It also includes 2 % in cash.

mphilips wrote:One more question... if the target retirement funds don't offer the 40 / 60 allocation that I am looking for is there anything wrong with a mix of the target funds themselves. For example 60% VTENX and 40% VTINX creates an asset allocation that is very close to 40 / 60 ... It also includes 2 % in cash.

No, nothing, except that if you are going to do that maybe a better idea is to go back to just assembling separate funds, starting with a simple three fund portfolio. Note that being "off" by as much as ten percentage points doesn't make that much difference.

I haven't seen in the thread so far whether or not we are talking about all of your porfolio or just part of it, and what the breakdown is between taxable and tax preferred accounts.

In my 401K core account I have a number of Vanguard Index funds to choose from but they left out an important one VTSMX. Instead they offer a variety of index funds for different market caps which are listed above. So in order to have the 3 fund portfolio I have to use 5 funds. Another comment about re-balancing made me think that the target funds might be a better choice but none of them are allocated with 40% stock and 60% bonds. 60% VTENX and 40% VTINX comes close to a 40 / 60 allocation. Since I am 59 and 1/2 today I am going to look into an in-service rollover into a Vanguard 401K. Does anyone know if you have to quite contributing to your 401K to do this?

grabiner wrote:Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index. Your international allocation can be Total International, and your bond allocation Total Bond Market. With institutional shares, you'll have extremely low expenses.

You want a 60/40 portfolio; you didn't specify an international allocation, so I'll assume 30% of the stock. Thus:

When I enter a distribution of stocks using 70% VIIIX 15% VMCIX and 15% VSCIX - Vanguards portfolio analysis shows a discrepancy in a comparison with the total US stock market which is listed as 65% Large Cap 28% Mid Cap and 7% Small Cap. By contrast VTSAX lines up exactly with this 65/28/7 allocation. Please explain why the 70/15/15 allocation does not line up this way.

grabiner wrote:Vanguard's small-cap index has some mid-caps by the usual definition; it's about the bottom 15% of the market. It doesn't overlap with the mid-cap index, which is about the next 15%. Thus, to get a total market allocation with the three funds you have, your US allocation would be 70% Institutional Index (which is the S&P 500), 15% Mid-Cap Index, 15% Small-Cap Index.

When I enter a distribution of stocks using 70% VIIIX 15% VMCIX and 15% VSCIX - Vanguards portfolio analysis shows a discrepancy in a comparison with the total US stock market which is listed as 65% Large Cap 28% Mid Cap and 7% Small Cap. By contrast VTSAX lines up exactly with this 65/28/7 allocation. Please explain why the 70/15/15 allocation does not line up this way.

The problem is with Vanguard Portfolio Watch. Vanguard puts most funds 100% in one category, and that isn't correct for Small-Cap Index, which is not 100% small-cap by the definition of small-caps which makes them only 7% of Total Stock Market.

Here is the data from Morningstar, which divides the market as 70% large, 20% mid, 10% small.

So this has a slight overweight to mid-caps. However, the overweight is in the largest of the mid-caps, which behave more like small-caps, as the mid-caps in the S&P 500 are mostly the largest ones, while the mid-cap and small-cap indexes cover all the mid-caps. Thus this allocation should behave much like a total-market allocation. 80/5/15 would come closer to the percentages at 71/21/8, but the exact correct percentage will vary.

target retirement, is nice for the rebalancing and it is nice otherwise.Some people will harp on the slightly higher expense ratio, but it really is small for the automatic action of it in rebalancing. Makes it easy. You'd do better than most other people with these/

I do appreciate that the target funds take care of the re-balancing for you but I am tending to think that I want to maintain a certain allocation even once I am in retirement and mixing the 2 funds is sort of a hack to obtain the allocation that I really want but does not exist in any one target fund. My other interest is in trying to obtain some stability in the bond portion of my portfolio, hence the stable value fund although I really don't know how to compare this one with any other. It also gives me an opportunity to decide how much of an international exposure I want instead of the 30% allocation in the target funds.